DISCONTINUED OPERATIONS

3 Months Ended

Mar. 31, 2013

DISCONTINUED OPERATIONS

DISCONTINUED OPERATIONS

NOTE 5 — DISCONTINUED OPERATIONS

Discontinued Operations at Holding Company and Other Segment

During the three months ended March 31, 2013, and 2012, we recorded $6.0 million and $1.9 million of after-tax gains, respectively, in discontinued operations at the holding company and other segment. In the first quarter of 2013, we remeasured uncertain tax positions included in our liability for unrecognized tax benefits after effectively settling a certain state income tax examination. We reduced the provision for income taxes related to this remeasurement.

Discontinued Operations at Integrys Energy Services Segment

Potential Sale of Combined Locks Energy Center

Integrys Energy Services is currently pursuing the sale of the Combined Locks Energy Center (Combined Locks), a natural gas-fired co-generation facility located in Wisconsin, as part of its long-term energy asset strategy. The sale of Combined Locks is expected to be completed by the end of 2013.

The carrying values of the major classes of assets related to Combined Locks classified as held for sale on the balance sheets were as follows:

(Millions)	March 31, 2013		December 31, 2012
Inventories	$	0.5	$	0.5
Property, plant, and equipment, net of accumulated depreciation of $0.5 million	2.0		2.0
Total assets	$	2.5	$	2.5

A summary of the components of discontinued operations related to Combined Locks recorded on the income statements was as follows at March 31:

(Millions)	2013			2012
Nonregulated revenues	$	—		$	0.4
Nonregulated cost of sales	(0.1		)	(0.3		)
Operating and maintenance expense	(0.1		)	(0.2		)
Depreciation and amortization expense	—			(0.1		)
Taxes other than income taxes	—			(0.1		)
Loss before taxes	(0.2		)	(0.3		)
Benefit for income taxes	0.1			0.1
Discontinued operations, net of tax	$	(0.1	)	$	(0.2	)

Sale of WPS Beaver Falls Generation, LLC and WPS Syracuse Generation, LLC

In March 2013, WPS Empire State, Inc, a subsidiary of Integrys Energy Services, sold all of the membership interests of WPS Beaver Falls Generation, LLC (Beaver Falls) and WPS Syracuse Generation, LLC (Syracuse), both of which own natural gas-fired generation plants located in the state of New York. The cash proceeds from the sale were $1.6 million, subject to certain post-closing adjustments primarily related to working capital. The sale agreement also includes a potential annual payment to Integrys Energy Services for a four-year period following the sale based on a certain level of earnings achieved by the buyer (an earn-out).

The carrying values of the major classes of assets and liabilities related to Beaver Falls and Syracuse classified as held for sale on the balance sheets were as follows:

(Millions)	As of the Closing Date on March 14, 2013		As of December 31, 2012
Inventories	$	1.8	$	1.8
Other current assets	0.2		—
Property, plant, and equipment	5.7		5.7
Other long-term assets	0.1		0.1
Total assets	$	7.8	$	7.6
Total liabilities – other current liabilities	$	0.4	$	0.2

In conjunction with the sale, the buyer will assume certain derivative contracts with Integrys Energy Services. The derivative contracts establish physical capacity hedges for the retail electric business and physical hedges associated with the sale of capacity to external counterparties. Integrys Energy Services is in the process of novating the external capacity sales contracts to the buyer, upon which time the corresponding purchase transactions with the buyer will terminate. The carrying value of the derivative contract liabilities assumed by the buyer were $6.8 million at March 31, 2013.

A summary of the components of discontinued operations related to Beaver Falls and Syracuse recorded on the income statements were as follows at March 31:

(Millions)	2013			2012
Nonregulated revenues	$	1.2		$	(0.7	)
Nonregulated cost of sales	(0.9		)	(0.4		)
Operating and maintenance expense *	0.4			(0.5		)
Depreciation and amortization expense	—			(0.2		)
Taxes other than income taxes	(0.3		)	(0.8		)
Income (loss) before taxes	0.4			(2.6		)
(Provision) benefit for income taxes	(0.2		)	1.0
Discontinued operations, net of tax	$	0.2		$	(1.6	)

* Includes a $1.0 million gain on sale at closing.

The sale of Beaver Falls and Syracuse will generate immaterial cash flows from providing certain administrative transition services to the buyer for up to a six-month period following the sale and from the potential four-year annual earn-out payment. Integrys Energy Services will also continue to purchase capacity from these facilities to satisfy certain capacity obligations, until novated to the buyer, and settle certain forward financial natural gas swaps under contracts that existed at the time of sale. Both of these transactions will generate cash flows that will expire upon novation or within two years of the sale and are not considered significant to the overall operations of Beaver Falls and Syracuse. Integrys Energy Services does not have the ability to significantly influence the operating or financial policies of Beaver Falls and Syracuse and also does not have significant continuing involvement in the operations of Beaver Falls and Syracuse. Therefore, the continuing cash flows discussed above are not considered direct cash flows of Beaver Falls and Syracuse.

Sale of WPS Westwood Generation, LLC

In November 2012, Sunbury Holdings, LLC, a subsidiary of Integrys Energy Services, sold all of the membership interests of WPS Westwood Generation, LLC (Westwood), a waste coal generation plant located in Pennsylvania. The cash proceeds related to the sale were $2.6 million. Integrys Energy Services also received a $4.0 million note receivable from the buyer with a seven and one-half year term.

A summary of the components of discontinued operations related to Westwood recorded on the income statements were as follows at March 31:

(Millions)	2012
Nonregulated revenues	$	4.1
Nonregulated cost of sales	(1.3		)
Operating and maintenance expense	(1.0		)
Depreciation and amortization expense	(0.3		)
Taxes other than income taxes	(0.1		)
Interest expense	(0.1		)
Income before taxes	1.3
Provision for income taxes	(0.5		)
Discontinued operations, net of tax	$	0.8

Integrys Energy Services will receive interest income for seven and one-half years from the sale date related to the note receivable from the buyer. The sale will also generate immaterial cash flows from providing certain administrative transition services to the buyer for up to a six-month period following the sale. However, Integrys Energy Services does not have the ability to significantly influence the operating or financial policies of Westwood and also does not have significant continuing involvement in the operations of Westwood. Therefore, the continuing cash flows discussed above are not considered direct cash flows of Westwood.